Statewide delivery policy ‘critical’ to cannabis industry success, California insiders say ahead of key court case

A controversial policy adopted last year by California that allows delivery of marijuana products anywhere in the state – even into areas where local municipalities have banned adult-use cannabis stores – is crucial to the ongoing success of the legal market, according to several delivery company officials.

Those same officials told Marijuana Business Daily they fear what might happen if the policy is thrown out by the courts next year, since a lawsuit challenging that policy is slated to go to trial in Fresno Superior Court on April 20.

If successful, it could threaten plenty of delivery companies with extinction and likely further bolster the state’s immense illegal marijuana market.

The lawsuit, filed by 24 municipalities and Santa Cruz County, contends the California Bureau of Cannabis Control (BCC) overstepped its authority with the statewide delivery rule.

The suit argues that Proposition 64 – which legalized recreational marijuana in 2016 – specifically allowed local governments to prohibit commercial cannabis activity within their borders, and the BCC’s policy undermines that right.

The case has the potential to upend much of California’s delivery business if it succeeds, said Eric Sklar, CEO of Clearlake-based Fumé Brands, a retailer and delivery business north of San Francisco that serves much of the state’s famed wine region.

“If it wasn’t for the state’s policy on outside-in delivery, the entire cannabis experiment would fail,” said Sklar, who also is a public official as a member of the state’s Fish and Game Commission.

“We have too few dispensaries, because localities are barring them. … The outside-in model is the single thing saving the system right now,” Sklar said, referring to the practice of delivering into a jurisdiction from a hub located outside a town or county.

Sklar estimated up to 75% of the deliveries performed by his company into seven neighboring counties are performed under the BCC’s statewide delivery policy and service jurisdictions that would otherwise remain off-limits.

He said many other delivery businesses face similar situations because roughly two-thirds of California municipalities and counties prohibit licensed brick-and-mortar marijuana retailers within their borders, and there are only about 260 delivery operators to cover the entire state.

A countersuit, filed against Santa Cruz County by Salinas-based marijuana retailer East of Eden, is on the docket in Santa Cruz Superior Court and is slated to be heard in July.

Attorney General Xavier Becerra’s office has filed paperwork in that lawsuit asking to join as a party in defense of the BCC’s policy – a move Sklar called “very significant.”

“It’s almost impossible to overstate how important it is that the state is taking this position,” Sklar said.

“If they hadn’t, there wouldn’t be a chance in hell that we would have outside-in deliveries in the state.”

Wide application of the delivery policy

The BCC’s announcement of its statewide delivery policy was a game-changer for many delivery companies searching for a legal home for their delivery hubs and also wondering what their business models were going to look like, said Zach Pitts, a board member of the California Cannabis Couriers Association.

When the new legal system was rolled out in January 2018, the only delivery operators legally allowed to do business were those that had municipalities or counties offering them local licenses.

So many, like Pitts, had to relocate from Los Angeles – or other cities that weren’t quick about licensing – to more industry-friendly locations so they could continue doing business.

The statewide delivery policy was formally rolled out last summer and arguably saved many delivery companies, just by expanding their customer base geographically.

“Literally every single delivery operator that I know of delivers outside of their jurisdiction,” Pitts said.

He called the policy “critical” to the ongoing success of his company, Oakland-based Goddess Delivers, as well as the rest of the legal delivery sector.

According to Eaze, a tech company that helps facilitate online marijuana orders, a whopping 595,000 deliveries have been placed through its platform by 376,000 customers since July 2018 in California jurisdictions that prohibit cannabis shops.

If the BCC’s statewide delivery policy were not in place, it’s likely those transactions would have occurred in California’s thriving illicit market, Pitts said.

“What’s been even the most critical about this is offsetting and preventing even more of an expansion of the black market,” Pitts said.

Pitts estimated that 90% of Goddess Delivers’ orders are to customers in cities or counties with commercial marijuana bans in place.

Brian Hayek, president of Los Angeles-based Driven Deliveries, said the policy shift opened up another 30% of the state to deliveries for his company, which equated to an additional 9 million-10 million people as potential customers.

What if?

While many delivery operators are banking on the state winning its case and the policy remaining in place, it’s conceivable the court might overturn it.

However, some delivery operators are situated geographically well enough that even if the worst-case scenario came to pass – and the statewide delivery policy was thrown out by a judge – they could pivot and survive even with a severely diminished customer base.

Or, some said, the case might stall in court for so long that it won’t matter.

“If they’re able to win that lawsuit, it’s going to get appealed and be one of those ongoing court cases forever, until (marijuana) goes federally legal and federal law trumps everything,” said Monica Gray, chief operating officer of San Rafael-based Nice Guys Delivery and Distribution.

Gray believes her company can adapt if statewide delivery comes to an end merely by relying on her distribution business and customers who live in regions where it’s legal for her to deliver around the San Francisco Bay Area.

But she’s also skeptical of how anti-cannabis cities could enforce a ban on marijuana deliveries anyway, given that most delivery drivers are in personal, unmarked cars.

“How are they going to take a delivery driver, figure out that they’re cannabis and pull them over and say, ‘You can’t be delivering here?'” Gray asked.

That’s why Gray believes that, if the BCC’s policy is overturned, it would “ignite the black market” because it’ll remain easy for illegal delivery services to keep doing what they’ve been doing without getting caught.

John Schroyer can be reached at [email protected]

One comment on “Statewide delivery policy ‘critical’ to cannabis industry success, California insiders say ahead of key court case
  1. Pat on

    Who couldn’t see this problem ( and many other obvious one’s that have already popped up and will continue to pop up ). Why? The state has only its best interest’s in mind, and not the public’s. Why would the state have to create a “policy” with regard to deliveries into dry counties? A dry county is a dry county. Period. This is how the state wanted it ( not the vast majority of its citizens ). And, it’s how the dry counties wanted it. But, the state was finding that it wasn’t bringing in as much money as it wanted for itself w/o bankrupting the majority of licensee’s with all of those fees/permits/taxes etc..; thereby killing its golden goose. So, they broke their own law, by creating a policy that increases their revenue by allowing already established licensed businesses in the jurisdictions where it’s allowed, to bolster their bottom lines and to sell their product in dry counties as if these counties had their own storefronts. What does this policy do? It robs that city/county dry of potential profits that the state and aforementioned legal players get to rake in. The legal players then have more revenue and therefore are able to stay afloat AND the state gets increased tax revenue. This policy also prevents/blocks thousands of potential retailers from benefiting from cannabis sales in their jurisdictions; therefore robbing business/employment opportunities and the potentially lucrative tax windfalls that would go into those city/county coffers. It’s their turf, and the state’s violating it for their own gain, at the expense of the former. And, the majority of these counties are impoverished, and located in great growing regions; and desperately need the revenue.

    Again, every time the state and/or one of its lackeys wants to see a change in the law; it’s to benefit the current handful of players. It keeps the price jacked and the taxes jacked. And that money is not shared with those municipalities that have banned cannabis sales. Who’s the bad guy here? Hey, you’ve got a delivery guy CEO whom is ALSO a state employee saying how bad it would be if the courts overturned this corrupt policy. AND, further, this guy sits on a commission that REGULATES cannabis at the state level. Any conflict of interest there? Compared to a black marketeer, this guy is much worse.

    Now, who’s the black market? Who’s the legal market? Who is the illegal operator in all this? It’s clearly the state regulatory agencies around cannabis. This CEO pretends that the black market is just going to encroach upon a territory that clearly doesn’t belong to him, or anyone else like him. But, he wants all of it for himself; and then some if he could get his hands on it. What he is saying without saying it, is that there’s a current turf war going on between guys like him and the black market; and he doesn’t want to lose that ground. That’s the bottom line. It’s not about safety/public health/or the environment. It about how much more money guys like him can make; with the state as his partner in crime. The black market is likely all over this like yesterday’s news. The state is out of its mind.

    Now, who’s the black market? Who’s the legal market? Who is the illegal operator in all this? It’s clearly the state regulatory agencies around cannabis. This CEO pretends that the black market is just going to encroach upon a territory that clearly doesn’t belong to him, or anyone else like him. What he is saying without saying it, is that there’s a current turf war going on between guys like him and the black market; and he doesn’t want to lose that ground. That’s the bottom line. It’s not about safety/public health/or the environment. It about how much more money guys like him can make; with the state as his partner in crime. The black market is likely all over this like yesterday’s news. The state is out of its mind.

    If the state had made STATE LAW applicable to the state ( I always thought that state law was just that ); and not just parts of the state, we wouldn’t be having this problem. But, the state’s greed/corruption/mal-intent around cannabis eclipses the vast majority of the mo/pop black marketeers out there. It’s astounding.

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